* Dollar higher across the board, trade still thin
* Sterling falls half a percent
* Little reaction to slip in Japan CPI (Updates prices, adds comment on sterling fall)
By Patrick Graham
LONDON, Dec 27 (Reuters) - The dollar inched higher against the yen and a handful of other major currencies in holiday-thinned trade on Tuesday, with sterling by far the biggest faller as concerns over next year’s Brexit negotiations continued to weigh heavily.
Going into the final week of 2017, the trend remains towards a stronger U.S. currency, although a 1 percent retreat for the greenback before Christmas suggested any attack on 120 yen and parity with the euro may have to wait until January.
Those bankers at their desks in continental Europe, with London on holiday, said they would be watching chiefly for any sign of a year-end squeeze in the cost for banks of borrowing dollars relative to other currencies.
Such costs - called the cross currency basis - have been rising and could support the dollar over the next few days. It gained 0.25 percent to 117.40 yen and 0.1 percent to $1.0441 per euro by 1250 GMT.
“The rise in the euro dollar basis is an argument for dollar strength. Plus you have the fundamental factors going into the beginning of next year that point (that way),” said Lutz Karpowitz, a strategist with Commerzbank in London.
“But so far it really has been quiet.”
With Hong Kong and Sydney closed, there was little reaction in Asian time to Japanese inflation data, which saw core consumer prices mark the ninth straight month of annual declines in November.
The yen has fallen by almost a fifth in value since the start of November and some in Tokyo argue that a slowing of the rise in U.S. Treasury yields and concerns over President-elect Donald Trump’s relationship with China may support the Japanese currency going forward.
“Trump’s policies are understood to be conducive to inflation and a stronger currency. But a higher dollar would be a significant setback to the U.S. economy seemingly in the ending stages of an expansion,” wrote Makoto Noji, senior strategist at SMBC Nikko Securities.
“Therefore, the Trump administration and the Federal Reserve would have to stick to a cautious monetary policy stance to prevent the dollar from appreciating excessively. We thus expect a very gradual downtrend for dollar/yen.”
The pound fell almost half a percent to $1.2243, trading within a few ticks of an 8-week low hit before Christmas.
“The pound has come under added pressure into the end of the year,” analysts from the LMAX currency exchange said in a note to clients.
“Diverging economic outlooks and monetary policy divergence should keep a lid on sterling rallies, while the threat of a hard Brexit and looming invocation of Article 50 could expose the UK currency to additional downside.” (Additional reporting by Shinichi Saoshiro in TOKYO; editing by John Stonestreet and Raissa Kasolowsky)